Archive for August, 2017

After investigations by judge Renaud van Ruymbeke on Landsbanki Luxembourg equity release loans the case against its main shareholder and chairman of the board Björgólfur Guðmundsson and eight ex Landsbanki employees was concluded in a Paris court yesterday 28 August: the judge acquitted all of them. The group of borrowers who have been seeking answers and clarification to their situation is hoping the prosecutor will appeal.

The main issue addressed by Justice Olivier Geron in the magnificent Saint-Chapelle yesterday was alleged fraud by the nine accused bankers. After clarifying some procedural issues, the judge read for an hour his verdict with gusto, making only a short break when he realised that one page was missing from his exposé.

The Justice established that the financial collapse in Iceland had not affected the bank in Luxembourg and there had been no connection between events in Iceland and Luxembourg. – That is one view but we should of course keep in mind that the Landsbanki Luxembourg operations were closely connected to the financial health and safety of the mother bank in Iceland as funds flowed between these banks and the Landsbanki Luxembourg did indeed fail when the mother bank failed.

The Justice also considered if the behaviour of the individuals involved could be characterised as fraudulent behaviour and concluded that no, it could not. Thirdly, he considered the quality of the lending, if the clients had been promised or guaranteed the loans could not go wrong. He concluded there had been no guarantees and consequently, no fraud had been committed.

Things to consider

I have dealt with the Landsbanki Luxembourg at length on Icelog (see here) and would argue that the reasoning of the French Justice did not address the grounds on which suspicions were raised that then led to the French investigation.

France is not exactly under-banked: it raises questions why the loans against property in France (and Spain, another case) were all issued from a foreign bank in Luxembourg. Keep in mind that equity release loans, very common for example in the UK some twenty years ago, were all but outlawed there (can’t be issued against a home, i.e. a primary dwelling). This is not to say these loans should be banned but, like FX loans (another frequent topic on Icelog) they are not an everyman product but only of use under very special circumstances.

It is also interesting to keep in mind that other Nordic banks were selling equity release loans out of Luxembourg. Also there, problems arose and in many cases the banks have indeed settled with the clients, thus acknowledging that the loans were not appropriate. Consequently, the cost should be shared by the bank and its clients, not only shouldered by the clients.

The judge seemed taken up with the distinction between promises and guarantees, that the clients had perhaps been promised but not guaranteed that they could not lose, not lose their houses set as collaterals. – The witnesses were however very clear as to what exactly had been spelled out to them. Yes, borrowers bear responsibility to what they sign but banks also bear responsibility for what is offered.

One thing that came up during the hearing in May was the intriguing fact that English-speaking Landsbanki borrowers got loan documentation in English whereas a French borrower like the singer Enrico Macias got documents in English to sign. One English borrower told me he had asked for an English version, was told he would get one but it never arrived. So at least in this respect there was a concerted action on behalf of the bank to, let’s say, diminished clarity.

Landsbanki managers have been sentenced in Iceland for market manipulation. This is interesting since many of the borrowers realised later that contrary to their wish for low-risk investments their funds had been used to buy Landsbanki bonds, without their knowledge and consent.

And now to Luxembourg

As I have repeatedly pointed out, Luxembourg has done nothing so far to investigate banks operating in the Duchy. The concerted actions by the prosecutors in Iceland show that in spite of the complexity of modern banking banks can be investigated and prosecuted. All the dirty and dirtiest dealings of the Icelandic banks went through Luxembourg, also one of the key organising centres of offshorisation in the world.

In spite of the investigations and sentencing in Iceland, nothing has surfaced in Luxembourg in terms of investigating and prosecuting. One case regarding Kaupthing Luxembourg is under investigation there but so far, no charges have been brought.

A tale of two judges and their conflicting views

Judge Renaud van Ruymbeke is famous in France for taking on tough cases of white-collar and financial crimes. Justice Olivier Geron is equally famous for acquitting the accused in such cases. One of Geron’s latest is the Wildenstein case last January where a large tax scandal ended in acquittal, thanks to Geron.

After the Enron trial and the US there has been a diminished appetite there for bringing bankers and others from the top level of the business community to court, a story brilliantly told by Jess Eisinger in The Chickenshit Club – and nothing good coming since the Trump administration clearly is not interested in investigating and prosecuting this type of crimes.

In so many European countries it is clear that prosecuting banks is a no-go or no-success zone. As shown by Ruymbeke’s investigations there is the French will there but with a judge like Geron these investigations tend to fail in court.

Update: the Public Prosecutor in charge of the Landsbanki case has decided to appeal the 28 August decision, meaning the case will come up again in a Paris court.

A whole new type of court cases is emerging in Iceland: shareholders are suing in civil cases for damages suffered as the collapse of Landsbanki and Kaupthing wiped out their shareholdings. Three recent Supreme Court decisions have paved the way for class action against Landsbanki’s largest shareholder, Björgólfur Thor Björgólfsson, to test if he was responsible for shareholders’ losses as the bank collapsed 7 October 2008. Those behind the Landsbanki class action intend to sue Kaupthing’s managers for the same reason, i.e. financial losses, based on a criminal case where nine Kaupthing managers have already been sentenced for market manipulation.

“Around thirty men are to blame for the banking collapse” – this is how Vilhjálmur Bjarnason, now member of Alþingi for the Independence party, dramatically described the situation a few weeks after Iceland’s three largest banks failed one after the other from 6 to 8 October 2008.

Bjarnason was himself one of tens of thousands of Icelanders who owned small shareholdings in the Icelandic banks, worthless after these October days in 2008. Some years ago, he was one of the instigators in setting up a group to test if damages could possibly be sought through class action.

Class action – a novelty in Icelandic courts

Nothing like that had ever been tried in Iceland and the path has proven tortuous. Last year, the Reykjavík District Court dismissed the case. The Supreme Court confirmed that decision but at the same time gave the group a direction to test: the Supreme Court pointed out the group’s diverse interests; after splitting the original group into three homogenous groups, according to when they bought the shares, the case was tried again. Again, the District Court threw the case out but the Supreme Court has now ordered the District Court to process the case.

This means that the three groups can now have their case tested.

The thrust of the case is that Björgólfur Thor Björgólfsson, as the bank’s largest shareholder, withheld relevant information that should have been in the bank’s annual accounts for 2005 and onwards. The information relates to loans to related partners, i.e. Björgólfsson and his father and also information regarding control over the bank. Had the shareholders been aware of this, they would not have wanted to invest in the bank.

A case built on the SIC report and witnesses

The case is partly built on the report of the Special Investigative Commission, SIC, published in 2010, which indeed recounts all of this. In addition, the group has sought documents and statements from witnesses in an earlier case, brought for the purpose of gathering evidence. If Björgólfsson will be found to have been in breach he will consequently be forced to pay damages to the shareholders behind the class action.

These attempts by the shareholders to sue Björgólfsson have been followed closely by the Icelandic media. Björgólfsson claims the action is utterly baseless and only a personal vendetta against him. One of the shareholders funding the action is Róbert Wessman, earlier CEO of Actavis. Shortly after Björgólfsson took over Actavis in 2007 Wessman left the company and founded his own generic pharmaceutical company. Wessman and Björgólfsson, who parted on bad terms, were for some years suing and counter-suing each other and as often reported in the Icelandic media there is no love lost between the two businessmen.

Kaupthing managers face action from the same shareholders

In October 2016, Sigurður Einarsson former chairman of Kaupthing, former CEO Hreiðar Már Sigurðsson and seven other Kaupthing managers were found guilty of market manipulation by the Supreme Court (see earlierIcelog). Since the managers have already been found guilty, the three groups behind the Landsbanki class action plan to sue Kaupthing managers personally for damages.

Who exactly will be sued is not clear but it seems highly likely that Einarsson and Sigurðsson will be among those sued.

There has been a general outcry in international media after the recent sentencing of former ELSTAT president Andreas Georgiou following six years of persecution by Greek authorities. With the exception of Kathimerini, the Greek press has however mostly been silent. As pointed out in the foreign media the “witch hunt” bodes ill for Greece and now, ELSTAT is indeed struggling with the national statistics… again.

The reporting on the recent conviction of former ELSTAT president Andreas Georgiou in Greece and abroad is decidedly different: abroad there is condemnation and genuine worry, in Greece there is little of that though with noticeable exception: Kathimerini did not hesitate to speak of “witch hunt.” The Financial Times’sheadline was a “legal farce calls Greek reform into question.”

The Georgiou case exposes a rift in Greek society

In a short and concise comment by the newspaper’s editor, Nikos Konstandaras, sets out how “the very name Andreas Georgiou – has come to symbolize a rift in society.” On one side there are those who worry about the future of Greece, “knowing that only rational measures will help Greece get back on its feet; on the other, a heterogeneous crowd of indignant citizens and cynical politicians, united by their passionate desire to abdicate responsibility for the past and the present, demands that reality bend to their will.

I am afraid that the second group has more passion, a longer history and the momentum that the first one does not: It is, of course, much easier to rouse the crowd with promises to avoid pain than to embrace it. And loading all the responsibilities for the country’s problems on one man, the former head of Greece’s statistical service, is most seductive: Those who are truly to blame get to play judge, while others believe that because one person is guilty for the crisis and for austerity, the rest don’t have to pay anything… History, though, will record the role they played. In the end they will be loaded with more blame than that which they are trying to saddle onto others.”

The political figure behind the ELSTAT persecution: Karamanlis

Even before the verdict at the end of July, Kathimerini was clear about the direction of the ELSTAT trial – Kostas Karamanlis is the driving force as shown on a cartoon where Karamanlis, playing a video game, is hell-bent on not letting Andreas Georgiou get away. Same could be seen in a recent article in Parapolitika: Karamanlis is still furious with Georgiou and could not hide his satisfaction when Georgiou was sentenced.

As mentioned by Kathimerini when it brought the news of the conviction, this was “the second time that the country’s top prosecutor overturned an earlier ruling in favor of Georgiou, in a case that has become a touchstone for relations between Greece and its creditors.”

The worrying thing is that the Karamanlis faction is still fighting the battles of 2010, still pretending that the fraudulent statistics, indeed exposed before Georgiou took office, are somehow part of evil foreigners kicking Greece.

Worries among international partners and professionals

The various international media and organisations are rightly worried about the relentless persecution of Georgiou: it is a clear sign of political unwillingness to face the facts of political governance in Greece.

For good reasons, the European Commission has been following the case with trepidation but so far it has been utterly unsuccessful in preventing the ELSTAT staff persecutions. Spokeswoman for the Commission’s financial issues Annika Breidthardt said after the conviction that it was not in line with previous acquittal for the same charges:

“The independence of statistical offices in our member states is a key pillar the proper functioning of the Economic and Monetary Union (EMU), this is why it is protected by EU law. We take note of the specific ruling which we note that is not in line with the previous ruling in the previous procedure. We understand that today’s ruling is open for appealing on legal grounds before the Greek Supreme Court. “We have full confidence in the reliability and accuracy of ELSTAT data during 2010-2015 and beyond” … We underlined the importance of the independence of ELSTAT as a key commitment under the terms of the Memorandum of Understanding of the Program,” said Breidthardt.

As the International Statistical Institute, ISI has pointed out, Georgiou acted in complete compliance with Eurostat practice, European Statistics Code of Practice: “Not only is the verdict unfair to Mr Georgiou, it also has negative implications for the integrity of Greek and European official statistics. Accordingly, the ISI calls on the Greek Government and the EU Commission, in consultation with their respective statistical authorities, to take all necessary measures to challenge this verdict and seek its reversal as a matter of the utmost priority.”

The absurdity of it all

As pointed out the The Greek Reporter there is the absurdity of the whole process: “Just to let the absurdity sink in: Greece falsified its official statistics for years & the only person prosecuted is the one who fixed them.”

Bloomberg commentator Leonid Bershidsky pointed out that the legal troubles of Georgiou “are about conflicting political visions of the country.”

In a personal and insightful article on Politico, the economist Megan Greene who has followed the Greek crisis from early on, raises the question of the integrity of Greece’s institutions.

New doubts regarding ELSTAT figures

There is now, again a looming suspicion hanging over ELSTAT. As FT reported recently, some discrepancy has surfaced regarding Greek national statistics, this time related to the country’s GDP figures leading the paper to connect this to the ELSTAT case: “The announcement came amid renewed scrutiny of Elstat following an outcry over the conviction by an Athens court last week of Andreas Georgiou, who headed the agency between 2010 and 2015 for “violating his duties.” Mr Georgiou faces a series of trials for allegedly inflating Greece’s budget deficit figure in 2009, the year the country plunged into financial crisis, even though all the statistics produced during his tenure were accepted without reservation by Eurostat, the EU’s statistical service.”

These are only few voices from a large choir of worrying voices. So far, Andreas Georgiou has been prosecuted for the last six years. As long as this is going on, the political forces around Kostas Karamalis clinging on to the past and obstructing a healthy revival of the Greek economy, have the upper hand. That is profoundly worrying for the Europen Union, the IMF and other international partners working with Greece for, hopefully, a better and more sound future for the country.

Greece needs an independent report on its crisis – as was done in Iceland

Incidentally, in Iceland after the October 2008 banking collapse there were also political voices claiming the collapse was all the work of foreigners somehow wanting to get control of Iceland, its natural resources etc. What finally and effectively silenced these voices was the very thorough report published in April 2010 by the Special Investigation Commission.

This independent commission did a brilliant work of clarifying all the relevant aspects of the collapse, from political apathy to the abusive control the largest shareholders had on the three largest banks. The report was an important step for Iceland in working itself out of the crisis but time has made it no less important: it is there as a reference in order to keep in mind what really happened so the time and selective memory cannot alter the facts. – Surely the kind of work sorely needed in Greece (and in all other crisis-hit countries).